Friday, March 26, 2010

Past the din of the historic health care legislation debate, there is a bill moving through Congress (now having passed both the House and Senate) that would restructure the student loan industry by eliminating payments to private banks for making federally-backed student loans. As it stands, the government spends a great deal of money to pay private companies to originate these loans; under the proposed legislation, the government would simply make those loans directly to students. The savings-- about $61 billion, most of which would be rolled into increases in the Federal Pell Grant. $10 billion of these savings would be used to offset the federal deficit.

This is Economics 101. By cutting out the middleman, we save a lot of money. More of that money will go to lower-income students (in the form of increased Pell grant amounts) instead of banks. This should be a no-brainer, but Republicans pushed back in deference to their banking industry friends. In the old system, banks would make the loans and make a lot of money while taxpayers assumed nearly all of the risk. A sweet deal if you are a bank, but as taxpayer, it was a raw deal.

Republicans, in their usual hypocritical modes of reasoning, argued that it would cost the banking industry jobs. You know, the same Republicans who keep stalling jobs bills, unemployment, etc. Their cries of "Big Government Takeover" are sadly misguided; the government is already the major actor in the process, with banks serving as a well-paid but unnecessary ancillary party in the process. This isn't a takeover, it's a streamlining process-- and one that saves the tax payers a lot of money.

As California representative George Miller said:

“Why are we paying people to lend the government’s money and then the government guarantees the loan and the government takes back the loan?”

Exactly. This is a win for students, a win for higher education, and a win for tax payers. Get your pen ready, Mr. President.